Rising Premiums

Tsunamis, hurricanes, tornadoes, oh my! In this episode of Risky Business, Colin Rooke and Paul Martin discuss how global claims are having an impact on local markets.

Listen to the full episode here, or read the full transcript below

Paul Martin: Hello, and welcome to Risky Business, Commercial Insurance with Butler Byers. I’m Paul Martin, the business commentator here, on the radio station, here on an ongoing basis.

Today, we’re going to be talking with as always, Colin Rooke, the commercial risk reduction specialist, with Butler Byers Commercial Insurance. Colin, we often talk about how you interact with a customer, or a client, or a prospect, and you provide them your step-by-step plan, and you show them how they can improve not only their coverage, but probably get a better rate.  Today, we’re gonna back up a little bit from that, and it’s gonna be less about the relationship between you and a customer, and how you interact, more about the state if the industry.

You know, it was a couple of months ago I guess, we were talking about just how much weather we had last year, and how hard that is on the insurance industry. And you predicted, I think back in January, you said, “Watch out, because rates are going to go up later in the year.” I guess we now have some data to support that assertion.

So, can you run me through? You’ve got … I think you’re calling it an annual report that’s just come in, and it’s outlining the sort of changes the industry is having to cope with this year?

Colin Rooke: Yeah, so something that we deal with all the time are, clients asking, “Are my premiums going to go up this year?” Or, “What’s happening with my premiums? What’s going on? Will that affect my premiums?” So, what we’ve done is, we have this report, and it’s as you mentioned, it’s a state of the union. It’s compiled of all of the underwriting information that is gathered from the big insurance companies, and this is across the world.

Lloyd’s of London is involved in this report, so it’s a predictive model. It summarizes what happened last year, and then based on last year, we’re half way through this year. Where are the trends going? What are we seeing, and what to expect, moving forward.

You mentioned yeah, we had three huge hurricanes last year, and just to put things in perspective, those hurricanes cost the insurance industry a hundred billions dollars.

We had three huge hurricanes last year, and just to put things in perspective, those hurricanes cost the insurance industry a hundred billions dollars.

Paul Martin: And those were just in North America, and then there were typhoons, and cyclones all around the world. Add those in too.

Colin Rooke: Yeah, those are just three hurricanes that affected North America. It’s a North American calculation, so as we’ve said in previous shows, even back in 2017, when these hurricanes were happening, and you might say, “Well, I just renewed. I saw a decrease. I don’t see these natural disasters affecting me.”

Well, I’ve always said it’s coming, and in 2018 now, and moving forward, it’s time to pay the piper, as they say.

Paul Martin: So buckle up, here it comes?

Colin Rooke: Yeah, yeah. So, in going back to 2017, and I want to relate this to the work we do. I’ve always said that simply going to any broker, and asking your broker to shop around, can save you 3% to 5% on your insurance, just having a look what’s out there. There’s gonna be some market that’s gonna say, “You know what? I’ll charge a little less to get that account. We’re growing, we’re feeling comfortable.”

And that couldn’t have been more true in 2017. The industry, across all lines, saw a 5% decrease. So, there is that … if you stuck where you were, you probably didn’t see anything. If you moved, you would have seen, and that’s taking into consideration, claims. These are businesses, all things being equal, I just wanted to shop. ’17 was a buyer’s market.

So again, just proves the point that, small savings are available. Now, it’s not the approach we would take, and not necessarily something I would suggest relying on, to save money on insurance premiums as shopping around, but if you did, you would have seen savings, regardless of the industry.

Now, looking back at 2017, we had the largest cyber breach ever recorded, the Equifax breach. Again, direct costs alone, $150 million in payouts. Then, we had … there was about almost … I think there was 12 other breaches that started in the $50 million range, that are no longer getting discussed, because Equifax was so large.

So, you start adding these numbers up. $100 billion in paid claims for hurricanes, and now we are seeing property especially, we are seeing rate increases, and you can expect, all things being equal, doing nothing, at minimum, 5%, but prep for up to 25%, over last year.

Paul Martin: 25% increase in premiums is not off the table for this year.

Colin Rooke: Yeah, yeah.

Paul Martin: Business people should be prepared to … if that’s what you see, don’t be surprised.

Colin Rooke: Yeah, and again, if you had a January one, February one renewal, you say, “Well, I didn’t see that.” Well no, this will be … they’re trending up. We are without doubt, seeing what we refer to as, a hardening of the market. So, coverages are harder to get. They’re more expensive to buy. Insurance companies’ capacity is reduced.

So, what that means is, the amount of risk a individual company is willing to take on themselves, that’s reducing. They want to spread it out. So, all of this makes insurance complicated. In fact, you might even be in a position where, the insurance company you’re currently working with says, “We want off risk.” Regardless of your actually risk profile, they’ll say, “Look, you’ve been great. The book has not been.”

So for example, in the transportation industry, there’s large insurers that have dominated this space, saying, “We’re done. We can’t write this class anymore.” Or, “We’re taking a drastic reduction in what we will write.” So again, that’s driving premiums up.

Again, there are a lot of cargo-related losses, but this could be, you know what? The book is performing so poorly on the property side that, cargo really wasn’t profitable. It hasn’t been for maybe 10, 15 years, but rates were low, just to get that volume to remain competitive.

And they’re saying it’s … we’re in such a spot, we have to drop that line. So, we’re seeing a lot of that.

Paul Martin: Alright, you’ve thrown a lot of stuff out here, and I want to dissect it, so-

Colin Rooke: Yeah, talking real quick.

Paul Martin: … let’s go bit by bit here. So first of all, what industries, if I’m in an industry, which are the ones I should be worried about? What are you looking at, and saying, “Here’s the caution flag for those of you in these industries”? Who can expect the biggest increases?

Colin Rooke: Yeah, so any large property business, if you have a lot of commercial real estate. So, on the property side of things, if your business is property-heavy, just stuff- heavy, you’re probably going to see increases.

Another thing, which I’ll say I certainly haven’t seen is, an increase in business interruption, and now, it’s a coverage that I believe every business should have, and most do, but because of these natural disasters, because of these total, or partial losses, and the frequency, and the severity of those, that this coverage is getting used so often where basically, they’re covering fixed expenses, and payroll, and possibly profits, among other things. It’s getting again, used, so then we’re seeing increases there, which has normally been a relatively stable line of coverage.

For those that have it, or those that need it, or should have it, cyber insurance coverage is really on the rise. And again, they gotta recoup somehow, from these breaches, and again, it’s the fastest growing form of crime in the world, and it’s the … With I guess respect to some natural disaster, weather-related claims, it would be number two in the paid premium space as well.

Paul Martin: And it’s getting more and more frequent, isn’t it?

Colin Rooke: You know, it really is. When we first started doing the show, we had a handful of … You hear about it all over the news, and we read all the industry association letters, so we’re very aware of global claims, and national claims, but now, it’s at the local level. We’re hearing about it all the time, and it’s increasing in severity, and it’s definitely increasing in frequency.

Paul Martin: Colin, we’re got to take a little break, so when I come back, I’m gonna take you back to a point that you made, which is, you called it, the hardening of the market, and that it’s harder to get coverage, and that, if you are gonna get it, it’s gonna cost more. I want to dig into that a little bit more, after this break.

You’re listening to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, as always, talking with Colin Rooke. We’re gonna take a short break. Back after this.

Paul Martin: Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, and my guest as always is Colin Rooke, the commercial risk reduction specialist with Butler Byers Commercial Insurance.

Colin, I said before the break that we’re going to explore a couple of avenues here, but I guess we should probably also acknowledge that we have some patrons and sponsors who help us bring this information that you are getting, folks such as Wawanesa Insurance that are supportive in the messaging we’re trying to deliver here, which is that as a commercial business owner, there is actually some ways that if you demonstrate a little due diligence, you can protect yourself in the face of what we are expected to see, significant increases in insurance premiums in selected categories this year.

Now, those things you were talking about, perhaps as much as 25% increases before the year is out, said that even though they’re going up like that, you might not be able to get the coverage anyway, because it’s just going to be harder and harder to get coverage. Insurance companies are saying, “Sorry.”

Colin Rooke: When you hear the term hardening of the insurance market, you’ll think, “Okay, so premiums are on the rise.” Well, that’s not your only concern. It’s, yes, premiums are on the rise, but coverages are being reduced significantly. Deductibles might be going up. They might eliminate lines of coverage all together. And then, you’ll run into challenges with the amount of coverage you’re able to buy.

In a soft market where prices are low, competition is high, you can really dictate. They might say, “Our limit is this.” And you can say, “Well, in order to get the business, you’re going to have to stretch it to that,” and they’ll listen and they will. Now, you’ve got the reverse saying, “Our limit was this. It’s now less and we’re going to increase the deductible so you’re going to pay more in a claims scenario for less coverage overall.” And that’s the reality that we’re moving into now.

Paul Martin: One of the things that we’ve talked about for two and a half years on this program is that what your step-by-step plan does is assist me as a business owner to position my firm to be best in class, and so now this is when the chickens are going to come home to roost, because if I’m best in class, I’ve got the highest likelihood of actually getting an insurance company to pay attention to me or to offer me coverage.

Colin Rooke: Yeah, so you have to look at things like everyone is concerned that if they don’t charge enough, the loss ratio will be too high and they won’t be profitable on … it might even be on your specific business or the whole class, or possibly the whole insurance company.

So, if you can imagine there’s all these concerns out there, but businesses still have to buy insurance. So what can you do to stand out among the crowd? And I would argue that working on risk management now has never been more important because we have, again, we have underwriters saying, “We don’t want this. We won’t offer that. We’re eliminating this. We’re charging more for that.” They are desperately looking for those business they believe are going to avoid this.

They are looking for the exceptions to the rule and if you aren’t in a position of at least convincing them that you’re going to get there, you’re going to be subject to terms being dictated to you as opposed to being able to sit back as the buyer and choosing what’s best for you. Again, if you’re not approaching the insurance market with a plan to show them that you are different than all these other businesses that they’ve recently paid out on, they’re going to treat you like one of those businesses that they’ve lost their shirts.

Paul Martin: Yeah and it’s pretty hard to portray yourself as different than the guy next door when you’re in the path of a hurricane. I mean, everybody gets hit by it, so you have to have a pretty good story. And really, it’s not about, “Well, I’ve had no claims so of course they’ll rewrite me.” That’s not necessarily true.

Colin Rooke: No. I mean, and a lot of businesses have rested on their laurels saying, “Well, I’m very desirable. I haven’t used insurance once.” That’s only one measure of predictability. And, don’t get me wrong. It’s something that matters to an underwriter, but they go in assuming no claims. They’re not betting on you’ll have repeated claims. The yardstick is let’s start at the idea that you won’t have really any at all or very few and we’ll price you accordingly. Now, they’re saying, “Claims are on the rise all over the place. We’re not profitable. What’s happening in the U.S. is affecting rates in Canada. You need to demonstrate more.” Lack of claims just isn’t enough.

Paul Martin: Yeah, and you need to demonstrate more, meaning the customer needs to demonstrate more. It’s not that the supplier or the insurance coverage is going to demonstrate more. In fact, they’re actually constricting and restricting. I think you said that those who have a shot at getting some coverage this year are maybe avoiding the big penalties that are coming from the aftermath of last year’s weather would be those with a very concentrated and detailed risk management plan.

Colin Rooke: Yeah, the interesting thing is that the summary of this article is that there is help out there. This isn’t supposed to be doom and gloom. And again, these are from the insurance companies. Butler Byers didn’t write this. And it is saying that properly risk managed businesses with a proactive plan, that they are actively working on are those that are going to be looked at more favorably and they are going to be able to avoid a lot of these penalties and these increases.

Because when you say, 25% increases, it doesn’t mean everyone is going to get 25% increase. I mean, there’s going to be double-digit, triple-digit increases for some companies. You might see a 300% rise in insurance premiums based on your own history, but that’s the average. So, do you want to be the average? Do you want to be above average? I haven’t met a business owner yet that says …

Paul Martin: “I can’t wait to pay a 300% increase in premiums,” yeah.

Colin Rooke: Yeah, so be the one that brings the average down. Have a plan. Give us a story to tell.

Paul Martin: You know, it sounds a little daunting when you say that. As a business owner, I got all these other things to worry about. I got to run my business and now you’re on the radio telling me, ooh, I should watch out because there’s big insurance premiums coming. But that’s really why we’re here, right? You can walk me through it. You can help people do this. It’s not as scary and

complicated as it sounds.

Colin Rooke: You know, it starts with a conversation. Let us get to know your business. We map that out. We figure out where you are now, where you’ve been and where you’re going and we explain that to the market. And that’s the biggest part of what we do is explaining the risk. Now, you look at the, again, the average insurance application. That’s not explaining anything. That’s the details. Our job is to say to another third party, explain why they should want you. And as we’ve mentioned, if it was a buyer’s market, we’re moving out of that. You may not have the selection that you previously enjoyed. So you want to work with someone that’s going to work at again, keeping costs low, but also improving performance of the company while we do it.

Paul Martin: And that’s what you can do. So all they need to do is give you a call and you’ll walk them through it and help them understand it and actually arm them so that, yeah, you might see an increase, but it probably won’t be as big as you could have seen if you chose to do nothing.

Colin Rooke: Yeah, absolutely.

Paul Martin: You’ve been listening to Colin Rook, the commercial risk reduction specialist with Butler Byers Commercial Insurance. I’m Paul Martin. Thanks for joining us. This is Risky Business, Commercial Insurance with Butler Byers.